HHS Rule Fails to Illuminate Complex Drug Pricing Schemes

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DALLAS – A new Health and Human Services rule requiring pharmaceutical companies to disclose list prices for medications in commercial advertisements is unlikely to boost price transparency for consumers. In fact, it may create even more confusion.

The only possible benefit is that it might ultimately force the major health care industry players—hospitals, insurers, and drug companies—to unwind and simplify prices in the health care system. 

“Secretary Azar’s rule misses a critical point in the battle for consumer price transparency because the market is so distorted by a huge system of behind-the-scenes discounts and rebates,” said Matthews, co-author of “Selective Transparency: Transparency Efforts Obscure Real Health Care Pricing Issues.”

“What’s the good of listing drug prices in advertising if almost no one pays the list price? When patients say, ‘My drugs are too expensive,’ they’re not talking about the list price—they’re usually talking about their co-pays at the pharmacy.”

While pharmaceutical companies determine a drug’s list price, says Matthews, health insurers and pharmacy benefits managers (PBMs) determine what patients will actually pay for those drugs. These companies negotiate discounts and rebates from drug companies that can reach 40 percent or 50 percent. Unfortunately, these health care middlemen keep much of those savings and pass only a paltry portion of the discounts on to consumers.

“Ironically, hospital list prices can be four or five times what patients (or their insurers) will actually pay, yet Sec. Azar isn’t addressing that problem,” said Matthews.

“If there is a silver lining in this new rule, it’s that it may put pressure on major health care industry players to reform how products and services are priced, so that list prices are more reflective of what consumers actually pay,” said Matthews.

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The Institute for Policy Innovation (IPI) is an independent, nonprofit public policy research organization based in Irving, Texas. IPI resident scholar Dr. Merrill Matthews is available for interview by contacting Erin Humiston at (972) 874-5139, or erin@ipi.org.

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